If you’re nervous, consider it a good thing…
In one respect, selecting ERP software is a bit like proposing marriage; you’d better be sure you’ll get along since you’re in it for the long haul barring a costly and bitter divorce.
Unlike a real life bride or groom though, the ERP software vendor you fall for isn’t likely to turn down your proposal. The onus is solely on you to evaluate the options and select the one that’s right. I’d be concerned if you weren’t nervous.
I’m betting you’re considering ERP software because you desire to better manage supply chains, inventory, and customer relationships while simultaneously offering a valuable and efficient ecommerce shopping and checkout experience.
I’m also betting a significant portion of your time is spent doing necessary yet seemingly trivial tasks that don’t add value:
- Entering data manually
- Retrieving data that’s siloed from complementary data
- Enduring inefficient inter-departmental workflow or reporting
You know many of these routine chores can be handled much more rapidly and efficiently by integrated software systems.
It’s why you’re considering ERP.
These systems can automate business processes and make managing your business more efficient and profitable. However, ERP systems can also be costly, difficult to integrate, and challenging in terms of measuring ROI.
The secret to happy ever after is choosing the right partner.
What is ERP?
It might be helpful to think of ERP as the key that unlocks the silos in which data is often trapped due to departmental affiliation, organizational structure, or human reluctance to share.
Enterprise resource management (ERP) software is engineered to collect, organize, and interpret data from a variety of business activities including:
- Customer relations
- Supply chain
- Human Resources
Without ERP, the bulk of your data is without context, perspective, or connection.
Only when you’re able to mine, organize, and develop it into insight can it deliver on its promise of helping you make better business decisions. Accessing the data, making sense of it, and doing so in real time are formidable challenges.
The idea behind ERP is to help larger organizations become more agile, efficient, and make data driven decisions that result in better business outcomes. The data compiled in an ERP system is often presented in a dashboard that decision makers can use to monitor and manage their businesses in real time.
Even though enterprise software is a relatively mature vertical, the global ERP spend is expected to increase more than 36-percent between 2011-2016:
Image via: Statista
Hidden within that growth is change. Increasingly, legacy in-house ERP systems are migrating to the cloud:
Image via: Statista
How Can an ERP Solution Help You?
Think of your business activities as parts of an engine…The ability to look under the hood while the engine is running can be invaluable when trying to decide whether to pull over and do preventative maintenance, take it to a shop for immediate repair, or keep going for as long as possible because all is well.
ERP software can provide the vision a business needs.ERP systems are designed to provide rich overviews of the applications running on an organization’s computer networks. Besides being able to track key performance indicators (KPIs) in real time, ERP systems can integrate business departments by tracking workflow, identifying duplication, and ensuring data integrity.
ERP software can save organizations money by:
- Automating certain employee job functions
- Eliminating single-purpose software
- Securing all company data in one place
- Creating a single analytics or reporting location
- Making it easier to accurately track inventory and sales
- Speeding collaboration between employees in different departments
It might be helpful to think about ERP on three levels when trying to match software solutions to your organization’s individual needs:
- ERP as a system or single solution relied upon for all of an organization’s software needs
- ERP as a supplement that may be integrated with existing software or tools
- ERP as modules, or collections of related software (Marketing/Sales or Finance/Accounting), that may be used for mission critical business functions but also integrated with existing software that may be separate or possess a different level of sophistication or focus
Image via: Statista
Besides the insight ERP software can provide, it can also address some of the agility issues with which businesses must cope:
Image via: StatistaERP software can provide an on demand real time snapshot of what’s happening on the backside of your business. It’s not something customers will see but it can provide a competitive advantage by helping you make faster, smarter, data driven decisions. In this video case study, the real estate company profiled was surprised that its ERP cloud was ready for use in just a few days rather than the months it might have taken to set up and integrate an in-house ERP. The company credits its new ERP system for automating tasks that allow employees to spend more of their time on work that adds value:
- ERP saves time collecting and entering data
- ERP generates reports for managers & investors
- ERP works outside the office & may be monitored anywhere
The Drawbacks of ERP
If you’ve already spent big bucks implementing an ERP system over a number of years, you’re not alone.
For instance, the Dow Chemical Co. spent $1 billion on an ERP system that took 8-years to implement. You can read more about Dow’s ERP trials and tribulations here. The company completed its integration in 2014 but spent much of the following year updating portions of the implementation that had become outdated since they were begun so long ago.
One rule of thumb, according to this estimate, is to plan to spend between $1,500-$4,000 per user per year. You might be able to negotiate volume discounts, but depending on the size of your company, understand it can also cost millions to implement ERP systems. Consider as well the recurring costs as you could spend between 10-15% of the total cost on yearly software license renewal fees.
Other considerations that can impact cost, integration time, and functionality include:
- Whether you’re integrating existing software with new ERP software
- Whether you’re starting from scratch and weighing cloud ERP vs in-house ERP
- Whether you’re integrating an existing in-house legacy ERP with a new cloud ERP which may require a two-tier ERP strategy
The IT resources necessary for the scenarios outlined will vary and thus also impact cost and duration of implementation. The vendor you select may implement the software itself, partner with a third party consultant, or leave it all up to you.
Additional ERP challenges may include:
- ERP ROI- it can be difficult to measure efficiencies, value, or the total return an ERP produces
- Data Migration- it can be costly, difficult, & time consuming to transfer data & maintain quality & integrity
- Employee Training- to take full advantage of ERP, employees must use it which could require training that reduces productivity & increases costs
- Reliance on Lone Vendor- the vendor you select will be responsible for upgrades & customizations and must remain in business for years for you to reap the full benefit of an ERP system
Identifying exactly what your objectives are by implementing an ERP, evaluating the IT and infrastructure necessary to integrate and maintain the system, and mapping out exactly how you’ll track and measure success are crucial in staying on budget and on time.
Identifying and understanding these items well in advance will not only help you select the right vendor but also contain costs and improve the odds implementation won’t drag out for years to come.
The Problem With ERP & Ecommerce
Organizations with existing ERPs can encounter problems when trying to integrate with a new ecommerce platform. With consumer preference for mobile ecommerce increasing, ERP vendors are offering ecommerce modules that allow businesses to begin selling online and seamlessly plug into the ERP system.
The problem is the modules offered by ERP providers may not be as intuitive as you’d like since they’re often originally engineered to collect, monitor, and manage the data resulting from back office functions, and are designed to be used by I.T.
The result is that businesses unknowingly get locked into an ecommerce platform that’s difficult to use, thinking it's the only way they'll be able to use their ERP.
Plenty argue for decoupling ecommerce functionality from ERP can allow you to make changes on the customer facing side of your site that don’t impact or require ERP-related development resources, however the fears that many have with keeping ERP seperate include:
- Having to manually re-enter ecommerce data into ERP
- Mismatched inventory data between the two systems
- Increased data duplication errors
In reality though, there doesn't need to be a trade-off.
Shopify Plus is able to integrate with virtually any ERP using the RESTful API and give you the insights you need.
Selecting the Right ERP Software
Selecting the right product and the right vendor hinges on intimately understanding your organization’s needs and appropriately evaluating competing systems side by side.
Here are six things to consider that can help you make a more intelligent decision:
#1 Objectives & Requirements
Why exactly are you interested in an ERP system? What problem are you trying to solve?
Outlining ultra-specific objectives will help you identify narrow requirements ERP software must meet to be purchased. To avoid being influenced by vendor marketing, you might consider listing your requirements before you begin researching options.
REMINDER: Mobile ERP
When identifying your requirements remember to balance them with your employee policy on mobile devices. While mobile ERP isn’t new, the BYOD trend is and should be considered when balancing the advantages of using ERP on the go and ensuring data is secure.
#2 Measuring ROI
When you begin researching ERP options you’ll notice no shortage of warnings regarding how difficult it is to measure ERP ROI. Fortunately, clearly articulating ultra-specific goals as you’ll have already done will help.
You might measure ERP performance by:
- Reduce headcount by X% in Y(months)
- Increases employee productivity by X% in Y(months)
- Reduce inventory by X% that results in Y accounting improvement
- Increase customer touches by X times that increases lifetime value by Y(amount)
- Improve accuracy of manufacturing cost quotes by X% in Y(months)
REMINDER: Cloud Considerations
When figuring how you’ll measure performance be sure to consider differences between in-house and cloud ERP. While cloud ERP is often user friendly and may require less in-house staff to maintain, it also means sensitive data will be stored off site. Conversely, an in-house ERP may allow you to store sensitive data closer to home but doing so could require additional staff for system maintenance. Either decision can impact your IT culture and headcount.
#3 Demystify the Demo
You’re ready to see software demonstrations.
You may want to provide a demo script that outlines specific functions, workflows, or features you expect to see during the demo. You might feel as if directing the demo with precision will save time and help you better determine whether the software meets your goals.
An alternative approach is to simply provide the vendors with a goal and see how they respond...
Remember, you provided the vendor with several of the goals you expect ERP to help you achieve:
Do the salespeople spend time learning about your business, asking follow up questions about how you’ll use ERP, and voluntarily incorporate your goals in the demo?
The demo you receive can be extremely revealing in terms of what kind of partner the vendor will be over the long haul; implementation, customization, and support.
#4 Checking References
Realizing you’re not likely to call nor get cooperation from a direct competitor, it may be helpful to speak with a reference that has similar goals to yours & can answer questions like:
- Which promises were kept?
- Which promises were broken?
- What surprised you about the vendor/product?
- What doesn’t the product do that you were told it would?
- Are you paying for modules/ tools you don’t need?
- Which deadlines were met & which weren’t?
- Were there additional or surprise costs?
- What mistakes did you make or wish you knew about prior?
If a reference says nothing negative, be skeptical.
Potentially even more important is asking a vendor for something they’re not likely inclined to give; a list of companies that recently selected a competing ERP provider. It might not be standard practice to ask for this type of information. However, a vendor’s response to your inquiry might be extremely telling.
#5 Get the Real Price
To select the right solution for your business, understand exactly how much the project will cost at each stage:
- Upfront cost
- Recurring costs
Having a thorough discussion about price can prevent future surprises and disappointment. It can also help you shape a contract both parties can be happy with.
REMINDER: Customization 2.0
Customization is crucial in squeezing every bit of value from ERP software. However, too much can result in major cost overruns and delayed implementation. Over customization can also result in higher upgrade costs. Unless a specific customization provides a competitive advantage or measurable benefit, consider saving the extra time and money custom coding often requires.
#6 Gauge Vendor Viability
As the enterprise software space consolidates, companies may not wish to support all of the products they acquires in perpetuity. Acquirers may choose to sunset a specific product or notify customers it will no longer support a product after a certain date.
This is a risk to anyone considering ERP software must be concerned with.
It’s important then to try to understand a vendor’s strategic vision:
- Was the product created to be attractive to a potential acquirer?
- Who controls the company & are they looking to sell it?
- Do the founders have a history of selling software companies?
- If so, what’s the time horizon and who are they trying to sell to?
- Does the vendor have investors?
- If so, what type of track record do the have?
- Does the product target a specific niche or solve a unique problem for which larger vendors haven’t targeted or solved?
For ERP providers that do not appear to be acquisition targets, it’s important to see their balance sheets so you can assess their financial strength and whether they’re likely to be around for the long haul.
Can Shopify Plus Work With an ERP Solution?
Yes, Shopify Plus not only integrates with a wide variety of ERP solutions, but is currently doing so for some of the world’s biggest and well known brands.
Shopify Plus customers like Mondelez International, the maker of Oreo cookies, have integrated their ERP systems with ease using Shopify’s RESTful APIs. In fact, the Oreo brand is enjoying so much ecommerce success, which was highlighted here, the company is planning to expand its ecommerce growth efforts in the future.
When you integrate Shopify Plus with an ERP system you get the best of two worlds:
First, you maintain a best-in-class ecommerce platform your customers have come to expect and appreciate. Second, you’ll be able to easily connect that platform with the ERP system of your choice which can help you make your business run more efficiently and profitably.
Shopify’s RESTful APIs mean you don’t have to choose between a brilliant customer facing ecommerce platform and an ERP system that can help shape the future of your business.
Be skeptical when researching ERP systems online.
Much of the content claiming to help you select and implement the right ERP system is produced by the very people trying to sell it to you or by:
- Outfits collecting leads to sell to ERP vendors
- Publishers who are paid by ERP vendors to be included in guides, handbooks, or white papers
This doesn’t mean the content isn’t accurate or potentially useful. Just be mindful of the source and whether a conflict of interest may exist.
Selecting the right ERP system requires disciplined attention to detail but a rather simple strategy:
- Understand exactly what you need
- Identify precisely how you’ll measure performance
- Understand exactly what the vendor will provide
- Check on the vendor including unconventional references
- Pinpoint the price including recurring costs & incentives & penalties
- Gauge vendor’s financial health and strategic direction
Good luck with the proposal. Just be sure they’re the one.
About The Author
Nick Winkler is a contributor to the Shopify Plus blog. He helps individuals & organizations generate new leads, make more money, and ignite growth with story. Get more from Nick here.